How do you give to charity?

Many Americans are using donor-advised funds

Dec 12, 2013 | Related Links Index Hidden Parent

Eileen Heisman
President and CEO, National Philanthropic Trust

A new study finds that more wealthy Americans are turning to donor-advised funds (DAFs) for their charitable giving.1

Nearly 4% of total giving in the United States—and more than 6% of individual giving—is now done through DAFs, according to the 2013 Donor-Advised Fund Report, compiled by National Philanthropic Trust (NPT).
 
Private family foundations still hold the largest concentration of funds earmarked for charity in the United States: a total of $556.35 billion. 

But the next largest and rapidly increasing concentration of charitable dollars is in DAF accounts. In 2012, there was a total of $45.35 billion in DAFs—up 7% over the previous year, according to the report. 

Donor-advised funds, which NPT President Eileen Heisman describes as “charitable savings accounts,” are popular in part because they offer:

  • A relatively low cost of entry for immediate tax deductions
  • The ability to defer decisions about grants
  • Easy access to sophisticated administration

Most charities offering DAFS require a minimum donation of $25,000.

In 2012, the average DAF account had $224,921. But, says Ms. Heisman: “I’ve also seen donor-advised funds with many hundreds of millions.” National Philanthropic Trust offers the DAF known as the J.P. Morgan Charitable Giving Fund.2

Private foundation owners use DAFs
Helping drive the rise of DAFs is the fact that they are also being used by individuals who have family foundations.
 
It used to be that individuals with great wealth gave solely through their private foundations, says Ms. Heisman. But “now, almost every donor I know who has a private foundation also has a DAF—and sometimes two or three.”

Why would anyone want both a private foundation and a DAF? Donors use both vehicles because DAFs allow them to:
  • Give anonymously—Donations from private foundations are public; DAF donations can be confidential
     
  • Readily donate illiquid assets—Some charities administering DAFs accept such illiquid assets as restricted stock
  • Give internationally—Some charities administering DAFs handle international donations—gifts that require a great deal of vetting, administration and oversight
  • Permit their children to give separately outside the private foundation mission—Wealthy donors also often use DAFs to train younger family members in philanthropy
     
  • Help a private foundation meet the required 5% annual payout—Using a DAF gives the private foundation more time to decide on an ultimate charitable recipient

Paying it out
Donations to DAFs rose significantly in 2012, in part because the national debate over taxes and spending created a “fiscal cliff” at year’s end. Some individuals chose to donate so their contributions would qualify for known deductions.
 
Donor-advised funds offer one of the highest tax deductions. Moreover, funds that go into DAFs qualify for an immediate deduction because they have been given to a charity. Yet the donor has no deadline for making recommendations when it comes to selecting the ultimate recipient.
 
Still, philanthropic dollars don’t just sit in DAFs, says Ms. Heisman. Grants for DAFs reached a record high of $8.62 billion in 2012—a payout rate of 16%.

“Americans are amazingly philanthropic,” notes Ms. Heisman: “Last year, Americans gave a total of $316.23 billion—that’s 2% of the U.S. gross domestic product and a 3.5% increase of our giving over the previous year, even adjusting for inflation. Ninety-five percent of high-net-worth individuals and 70% of all Americans give. It’s really a part of our everyday lives.”3

Learn more
We invite you to contact us, and a J.P. Morgan representative will be in touch with you.

1. All facts regarding donor-advised funds come from the 2013 Donor-Advised Fund Report, compiled by National Philanthropic Trust.

2. The J.P. Morgan Charitable Giving Fund is offered under an agreement between
J.P. Morgan and National Philanthropic Trust (“NPT”), a public charity incorporated in Pennsylvania.

3. Source: Giving USA: The Annual Report on Philanthropy 2013, Indiana University Lilly Family School of Philanthropy and The Giving Institute.

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